Landlords Anicia and Paul van Elst had been living in the containers before the tenants moved in, and initially believed it to be legal and up to standard when they rented it out.
But Brennan said the van Elsts later admitted the infrastructure was not up to it.
"These premises should never have been rented out."
The tenancy began in June 2020 and ended on short notice from the tenant in February 2021.
An application for $30,000 compensation and exemplary damages was lodged with the tribunal a year after the tenancy ended.
The tenants wanted "all of the rent, bond, power along with compensation for the unsanitary living conditions of the property".
The unconsented home, installed in 2000, was made up of two converted shipping containers with a central covered area and an outhouse with laundry and a second toilet.
Services were basic; water was delivered by garden hose and electricity from an extension cord from the main house.
Wastewater went to a septic tank, grey water to a soak pit outside and the dwelling had no smoke alarms.
The tenants heard about the rental through word of mouth and after visiting the property and being told by Anicia van Elst the rent would be $200 per week, including power, a cash bond of $800 was paid.
Paul van Elst was not present at the viewing, or when the arrangement was made, and the tenancy decision noted he wasn't expecting such news and was unhappy about the arrangement.
Four to five days after the tenants moved in, they were called by Paul who said the agreed $200 for rent "was not sufficient" and he upped it to $250 with an extra $50 for power and an additional one-off $200 on top of the bond.
Despite this, the tenancy continued, but problems arose over the very basic infrastructure, including if the hot water supply was interrupted it would come out "scalding hot".
The tenants knew the property was not "permitted", but continued to stay there despite a number of unaddressed issues by the landlord.
A post-tenancy investigation, prompted by the tenants, was done by the Tenancy Compliance and Investigations Team and the Kaikōura District Council which found it to be in breach of the Residential Tenancies Act and non-compliant.
The container home was described to the investigator as a "work in progress" by the landlord, who did not build it but was under the impression it was compliant.
The van Elsts bought the property, including the containers, in 2007, seven years after they were constructed by the previous owners without council consent.
Paul van Elst said a formal tenancy agreement was never signed by the tenants.
The tribunal decision said the landlords failed to lodge the cash bond, produce receipts for the rent payments, and had been overcharging for power.
Paul van Elst said during the hearing he believed the application was a set-up after the tenants decided to leave, however, Brennan said there was previous evidence that the tenants were unhappy before they left.
Brennan listed a number of risks at the property including the lack of smoke alarms, an internal gas instant hot water of "uncertain installation", inadequate water, and draining with an electrical risk as the extension cord ran above ground through that area, as well as a non-compliant wood burner.
"The premises is a building never designed for, nor consented to be used for fulltime residential occupation," he said.
"There is no evidence of it having been made compliant for that use or of any application having been made for consent to use it as such, after prior rejection of appropriate applications by the previous owners."
